Misum Forum 2023 Summary & Highlights

Thematic Summary

1. CLIMATE (DE)STABILIZATION  

Professor Rebecca Henderson opened her keynote speech by stating that “if we are not measuring what we are doing, we are not going to get anywhere.” In her talk, she highlighted how climate stability is the foundation upon which society is built. With an increasingly volatile and unpredictable climate, all of society’s institutions are at risk if the basic tenets which hold them together grow shaky.  

This was exemplified through the anticipated upcoming bankruptcy of the state of Florida in the USA. She argued that climate change through higher temperatures, more extreme weather and rising sea levels is steering Florida’s property dependent market towards bankruptcy. Coastal states such as Florida will only continue to face increasing challenges. For example access to insurance is becoming more difficult and mortgage providers are growing ever more cautious as property values are affected in climate exposed residential areas. Weaker property markets lead to lower tax revenue, which both increases dependency on alternative taxation forms and leads people to migrate. As a result, ultimately investors will cease investment activities, leaving vulnerable states like Florida in the hands of the federal government.  

She emphasized that this is not only a case for Florida as a state, but indicative of what is happening broadly in society. Today’s financial markets sit on top of a set of institutions which take for granted the assumption that the world’s climate is relatively stable and predictable. But stability in the climate can no longer be assumed; the world’s climate is changing - and changing very quickly. This challenges the plausibility of the current societal construction of various institutions such as financial markets, infrastructure, housing, agriculture upon a firm foundation.  

2. THE CHALLENGE OF MEASURING PERFORMANCE

A common refrain from various speakers was “what gets measured, gets managed”. Professor Jan Mouritsen argued that for decision-making it is important that measures are available, auditable, comparable, and ultimately credible in order to yield influence. He argued that ESG measures are institutionally constructed and that calculations can sometimes stand in the way of innovation. He thus advocated for taking a step back from the measurement of performance to instead focus on transformation.  

The CFOs in the industry panel addressed the challenge of measuring performance in calling for further government efforts to ensure that sustainability reporting brings comparability and objectivity into the corporate sphere. They also discussed that a helpful next step beyond compliance would be the ability to distinguish between different strata of companies when it comes to sustainability. Carl Mellander shared that at Ericsson seeing sustainability reporting not “just as another reporting exercise” but increasingly integrating throughout the firm has helped to clarify the company’s many impacts and the many things impacting them. This was also reiterated by Atlas Copco’s CFO Peter Kinnart who stated that they have integrated sustainability into their incentive systems, making sustainability something which directly affects compensation through absolute numbers and targets, putting pressure onto the organization to deliver on sustainability parameters as well as the traditional financial metrics.   

Professor Anette Mikes posed another important measurement consideration - “What if we cannot measure? We might still need to manage it.” She highlighted that accounting can be a tool to foster discussion around things we cannot measure, namely a moral imagination. Concretely, she suggests that accounting can identify trade-offs and demonstrated an ESG radar as a tool for doing so. Although we cannot measure ethical considerations per se, using the ESG radar a company can give each priority a unique weighted score, in turn triggering moral imagination in the boardroom. 

3. ACCOUNTABILITY 

Professor Rebecca Henderson argued that although we are all ‘grains of sand in the wind,’ if we start from ourselves as individuals and move together, we can achieve sustainable change. She underlined the importance of political solutions which lead to balance between free markets and healthy democracies while also noting that many governments are unwilling or unable to play this part. This is where the private sector can and must step in. She argued that our ability to address climate change is not limited.  

Professor Julianne Reinecke stressed that our collective future is a common challenge. She argued that everyone must share a joint incentive to protect common resources and avoid compromising the ability of future generations to meet their own needs. Following the idea of a common challenge and shared value, Professor Anette Mikes also argued that we need to make ourselves accountable, not only for the financial and legal, but also the ethical. An inclusion of ESG priorities into our key priorities can extend our accountability towards multiple actors in times when there is a need for trade-offs.  

Professor Jan Mouritsen illustrated how calculations on emission activity help us to make sustainability actionable and auditable. Using CO2 emissions from the perspective of Scope 3 and 4, he pointed out that Scope 3 establishes interorganizational relationships where firms become responsible for their supply chains and incentivized to minimize emissions not only for themselves but also on behalf of their suppliers. However, he also demonstrated examples where measures and calculations set out to reduce emissions actually lead to an increase in emissions. Measurement is an activity which may not be fully predictable, one must be aware of the possibility of adverse effects due to unintended consequences. 

The CFOs in the industry panel called upon governments to increasingly incentivize sustainable solutions and stop subsidizing fossil-based technologies, but they also talked a lot about their responsibilities in the private sector for eliminating emissions. Interestingly, they further called on capital markets to increase demand for climate accountability. Carl Mellander (Ericsson) said that they rarely get the question in investor relation meetings and that they would hope for more sustainability demands from the capital market. The other speakers echoed this and shared similar experiences.  

4. TEMPORALITY OF FINANCIAL ASSUMPTIONS 

Professor Rebecca Henderson’s academic address framed the event with a clear observation that that we have a temporal issue on our hands. Financial markets and models rely on stability as a core tenet for the purposes of forecasting the future, but as shown this assumption is increasingly problematic with the destabilization of the climate due to climate change. Although many effects are already playing out, more are to be expected in the future.   

Professor Julianne Reinecke pointed out that today’s financial models have a temporality issue. Financial actors do not worry about climate change as financial modeling largely looks at just a 6-year time horizon. With many models only recognizing the immediate challenges, long-term effects and events that fall outside the forecasting horizon are at risk of being neglected in the decision-making of today. Arguing that the future commons are socially constructed, she suggested a shift in mindset from knowing and predicting the future to thinking about how we can make the future. We need to think about the future as something coming towards us but also something that we cannot always predict. She argued that “the best way to predict the future is to create it.” In doing so, we need to go from a backward-looking perspective of profitability to a forward-looking perspective of risks and opportunities. Professor Anette Mikes also touched upon the issues of temporality by arguing that forecasting models have typically been occupied with the financial perspective and less with moral and ethical considerations. It is thus crucial for decision-making to consider trade-offs, what harms and benefits come from a certain decision today and to whom and where are the implications expected to be seen.   

In the panel discussion, the CFOs added more depth to the temporality issue by highlighting the wide range of financial assumptions. While some capital market actors have a more short-term view, they also work with pension funds in this capacity. These actors have more long-term financial interests and thus pay more attention to companies’ climate risks and sustainability strategy.  

5. GOING FORWARD – SO NOW WHAT? 

All speakers had takeaways for the audience on how to address the climate change issue and reimagine the current capitalistic system. Professor Rebecca Henderson encouraged all leaders to reflect on their motivating purpose and suggested that we should practice joy at least 15 minutes each day. She stressed the importance of focusing on what we can do, in particular as an audience primarily from academia and the private sector. She encouraged us to remember that while change is not easy, but it is absolutely possible. To instigate change, people must believe it is fundamentally important, but also understand the business case of it. We must continue holding companies and governments accountable, but it is dangerous to not let them try to innovate and change. Following the same lines, Professor Jan Mouritsen said, “take things seriously, do things for people, even if it falls apart”.   

The CFOs stressed that sustainability reporting needs to be useful beyond compliance; Carl Mellander argued that we need to “embrace reporting” and argued that reporting is an exercise that opens up for analysis and deeper understanding. Peter Kinnart also highlighted how sustainability performance should be as natural as financial performance and how they need to engage more in discussion of those targets with investors. Being mindful of the entire supply chain from production to output, Jonas Rickberg also highlighted the importance of addressing emissions not just on the customer side but also within the production process.  

Professor Julianne Reinecke emphasized that it is key to reflect on whether the people we are today reflects the people we ought to be. She argued that a formidable challenge for all business schools will be to educate and teach new generations of leaders while simultaneously working with and updating the agendas of the leaders of today.